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Debt can be very deceptive. There can be "good" debt and there can be "bad" debt. Debt is basically money (or some other resource) borrowed by you and owed to someone else (e.g. loan, mortgage etc.). Good Debt: Debt that you incur that increases your income. For example, you borrow money (which is also a form of leverage) and purchase a business, real estate, or other investment that produces more income (cash flow) than the cost of the loan or debt. Bad Debt: Debt that you incur that decreases your income. For example, you borrow money and purchase something that does not produce income or adequate income to pay for the loan (home, car, boat, business etc.)
Extreme care should be taken when dealing with debt. This may seem obvious but many people and businesses get in debt problems. There are several notable examples of this. An additional concern today are the large number of people obtaining "home equity" loans. Many people are taking these loans to pay off other debt (e.g. credit cards). While paying off higher interest credit card debt may be good, if the underlying general mismanagement of money is not addressed then many people will eventually have no equity in their homes (meaning they will not be paid off at retirement) and credit card debt will reappear. Be very careful and consult a financial advisor. |
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